Beyond meaning

Originally posted on November 11 on Inside Edge 2, my blog for Inside Housing

So now it is official. Brandon Lewis has confirmed that ‘affordable’ means 80% of the market rate.

His statement at a Communities and Local Government Committee hearing on the Housing Bill confirms a direction of travel that has been clear ever since the creation of ‘affordable’ rent. Starter homes at a 20% discount to the full price now represent ‘affordable’ home ownership. Needless to say, neither is exactly affordable by any conventional definition of the word.

The minister’s statement came in this exchange with Labour MP Jo Cox:

Cox: Do you think there should be a statutory definition of affordability for both rent and purchase?’

Lewis: At the moment it’s 80% of the market value, whether to rent or purchase.

Cox: But there isn’t a statutory definition.

Lewis: Well, the definition of affordability… an affordable rent is 80% of market value and affordable purchase with starter homes it would effectively be 80% of market value.

As Colin blogged the other day, the corruption of meaning goes beyond just ‘affordable housing’ when it comes to the Housing Bill. What’s interesting here though is that there still isn’t a statutory definition but the symmetry between affordable rent and starter homes seems clear in the minister’s mind.

The issue is directly relevant to the Housing and Planning Bill because it will allow (or compel, it’s not yet clear) local authorities to count starter homes as ‘affordable’ within section 106 agreements. Depending on how this works (and that’s not clear yet either) that could mean a severe reduction in affordable rented homes delivered through the planning system and it could also leave a funding shortfall for social infrastructure (because starter homes are exempt from the community infrastructure levy too).

There is also an issue with starter homes and the National Planning Policy Framework (NPPF). Introduced by the coalition in 2012, this watered down the previous definition of ‘affordable housing’ in planning legislation (‘to meet the needs of eligible households including availability at a cost low enough for them to afford, determined in relation to local incomes and local house prices’). Instead, affordable means:

‘Social rented, affordable rented and intermediate housing, provided to eligible households whose needs are not met by the market. Eligibility is determined with regard to local incomes and local house prices. Affordable housing should include provisions to remain at an affordable price for future eligible households or for the subsidy to be recycled for alternative affordable housing provision.’

However, the NPPF also says specifically:

‘Homes that do not meet the above definition of affordable housing, such as “low cost market” housing, may not be considered as affordable housing for planning purposes.’

That sounds very much like it would rule out starter homes and CLG committee chair Clive Betts asked Lewis if he planned to change the NPPF. The minister replied:

‘Well, we’re looking at this through the process of the Bill. We’re not keen to change the NPPF where we don’t have to. But we are keen to ensure that the definition of affordable homes, as outlined in the NPPF, reflects ownership as well as rental.’

This is the housing policy that came from Vulcan that I blogged about last week: more than 20 years ago John Redwood argued that social housing should be for ownership when he was Welsh secretary. The slight problem is that buying a home costs two or three times more in relation to incomes than it did in the mid-1990s.

And that’s also the real problem with Lewis’s definition of ‘affordable’: it may be below the market price but it bears absolutely no relation to what people can afford to pay.

As a quick illustration of this, the median household income in the UK before housing costs is £453 a week or £23,556 a year (DWP figures). On a conventional mortgage calculation, that household would qualify for a home loan of perhaps £82,000 (three and a half times joint income). However, that figure is for income not just earnings and under the current stricter affordability rules, the maximum loan would more likely be below £60,000.

According to the ONS house price index, the average price of a home in England is £298,000. A 20% discount on that is £238,000. The average first-time buyer price is £226,000 (or £181,000 at a 20 per cent discount). Even the discounted price of a first-time buyer home in the cheapest part of the country (the North East) would still be out of reach at £98,000.

Then look at rents. We may have no statutory definition of ‘affordable’ but in the United States a household paying more than 30% of their income in rent is considered to be ‘rent burdened’ while one paying more than 50% is ‘severely rent burdened’. The key problem of affordability on both sides of the Atlantic is that house prices and rents have soared over the last 15 years while incomes have stagnated.

On this basis, a household with a median income of £453 a week would be rent burdened once their rent is more than £130 a week and severely rent burdened on a rent of more than £227 a week. According to Valuation Office Agency stats, the median rent for a two-bedroom home in England is £595 a month (£137 a week). That rises to £1,400 a month (£323 a week) in London.

Lower quartile rents are about 80% of the median but even these would leave a household on median income rent burdened by the median rent in the south of England and severely rent burdened in London. No wonder ministers think housing benefit is ‘out of control’.

There is no perfect definition of affordability – these are just rules of thumb. Housing costs vary according to where in the country you are, where in the market you are, how old you are etc. and Alternative data is available on incomes, house prices and rents.

However, it’s hard to think of anything worse than a definition of affordability that takes no account of income whatsoever. That’s how governments can come up with policies like Pay to Stay by arguing that any rent less than the market rate must be a ‘subsidy’ (the logical fallacy here is that the more their policies inflate house prices and rents, the greater the subsidy must be).

This point was well illustrated in this exchange at CLG questions slightly earlier on Monday:

Daniel Zeichner(Cambridge) (Lab): The Minister wants to punish council tenants who do well by raising their rents. In a high-cost city such as Cambridge, £30,000 is now the Government’s cap on aspiration. He has been vague about what household income means: will he give us a proper definition today?

Brandon Lewis: Obviously we will be taking this issue through in the Housing and Planning Bill over the next few weeks, and it will no doubt be discussed. We are clear, as has been welcomed by the housing associations and local authorities, that it is right that high earners pay their way.

No wonder we end up with income thresholds fixed at a level that makes them a work tax. Just as unaffordable homes can become ‘affordable’, so people on relatively modest incomes can become ‘high earners’.

That’s what happens when the word ‘affordable’ is emptied of meaning and turned into a travesty of itself.